Steeper rate kicks in for students

Government stands to gain $46 million a year by cutting average borrower's repayment time by four months.

The savings made from the allowance changes would be injected into science and engineering education. Photo /

Student loan holders will pay $11 more a week from today as the Government ramps up its repayment scheme.

Any borrower earning more than $367 a week will be subject to the change announced in last year's Budget, which raised the repayment rate for student loans by 2 per cent.

It was expected to net the Government around $46 million a year and reduce the average borrower's repayment time by four months.

Tertiary Education, Skills and Employment Minister Steven Joyce said it was a small increase which was not expected to unfairly penalise ex-students.

"We could've ... put interest back on student loans, which a lot of people advised us to. Or we can do other steps which improve the value of the scheme and get it to a more reasonable cost."

The increase in repayment rate meant a person earning the average wage of $923 a week would pay back $66.90 a week instead of $55.80, on top of income tax of $114.40.

The Opposition argued the increase wiped out the value of personal tax cuts introduced by National.

Mr Joyce said this argument was unfair, because the higher repayment lasted only for the period it took to pay off a loan - an average of four-and-a-half to five years.

"Effectively, it's like a tougher savings scheme. You're paying the loan off faster, but once it's done it's done."

A voluntary repayment bonus for loan-holders, which rewarded students for paying off their debt quickly, would no longer be available from today.

The scheme had not generated the increase in repayments the Government wanted and had encouraged students to borrow unnecessarily.

The most controversial policy change was implemented earlier this year, when student allowances were limited to 200 weeks. Students had previously been able to get extensions to their allowance when they began post-graduate courses or were in enrolled in longer degrees, such as medicine.

Mr Joyce said that it was too early to tell whether this change had affected post-graduate enrolments, but anecdotal evidence indicated the number of students in post-graduate study had fallen.

The savings made from the allowance changes would be injected into science and engineering education.

The Government was aiming to reduce the cost of lending under the Student Loan Scheme, which had ballooned to 48c in the dollar five years ago. Through changes such as aggressively pursuing overseas borrowers in Australia and Britain, that cost has been reduced to 37c in the dollar. Mr Joyce's goal was 33c.

A bill passed in Parliament last week would allow Customs officers who identified serious student loan defaulters at the border to pass their information, such as a future address, to Inland Revenue.

Student loan changes:

• Student loan repayment rate raised from 10 per cent to 12 per cent of income over $19,084.Saving: $184.2 million operating over four years.

• Voluntary repayment bonus scheme scrapped.Saving: $43.5 million operating over four years.

Other changes

• Welfare benefits go up by 0.61 per cent, giving single unemployed people aged over 25 an extra $1.25 a week, and a couple $2.08 a week.

• Superannuation rates go up by 2.44 per cent in line with the net average wage, providing an extra $8.50 a week for single superannuitants living alone and an extra $13.08 a week for a couple.

• The minimum wage goes up by 25c an hour to $13.75.

• Workers who contribute to KiwiSaver will now have to contribute a minimum 3 per cent of their pay, up from 2 per cent.

• School-aged children earning under $2340 who paid tax can no longer claim it back.

• Individuals will no longer be able to claim childcare and housekeeper tax credits, or tax credits for incomes under $9880.